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How IDC is trying to create black industrialists

While the IDC is doing a lot to help new entrepreneurs, it still needs to do a lot more to fund businesses in new industries

03 August 2017 - 22:41
Hanna Ziady

Picture: ISTOCK

Thembinkosi Mthembu is a black industrialist. The founder of Mthembu Tissue Converting, he started his career at Nampak as a packer. He later became its converting plant manager and now owns a company that directly employs 18 people. Like the folks behind 100% black-owned furniture manufacturer Fair Price Furnishers — which has created 183 direct jobs — Mthembu received funding from the Industrial Development Corp (IDC), for which creating black industrialists is a strategic imperative.

While "black industrialist" may on the face of it seem just another catchphrase to be trotted out, it’s a concept that the continent’s largest development finance institution is taking seriously. It approved R4.7bn in 83 transactions for black industrialists over the year to March — a 63% increase on the prior year and 30% of the R15.3bn in funding approvals that it granted.

There are many more examples akin to Mthembu and Fair Price Furnishers. Transmission Worx, a majority black women-owned business in the power line and telecommunications infrastructure space is another beneficiary of IDC funds.

There are also smaller businesses, such as Octopus Vision, a 100% black youth-owned film company.

It is not enough for empowerment to be only about substituting white shareholders with black shareholders, says IDC CEO Geoffrey Qhena. "It is important also for those invested to get involved in the businesses ... to get their hands dirty, take additional risks, understand the business, add value and come up with new ideas."

The necessity of assisting black industrialists is undisputable.

The concept, says the department of trade & industry, "refers to black people directly involved in the origination, creation, significant ownership, management and operation of industrial enterprises".

The IDC has put its money where its mouth is. Since the inception of its Black Industrialists Development Programme in 2014/2015, it has approved 203 deals worth R11.4bn to 185 companies. This, it says, has created and saved 11,725 jobs.

With assets of nearly R130bn, the corporation has major firepower to effect economic transformation. Of the R15.3bn in funding approvals given in the year to March, R10.1bn was for black-empowered and black-owned companies — more than double that approved the prior year. And R3.2bn went to women-empowered businesses, or triple the R1.1bn approved in 2016.

The IDC is enabling entrepreneurs to get on their feet and is helping to establish black industrialists; but it should do more to fund businesses in new industries, says a former IDC chief economist

Though disbursements slipped 3% to R11bn over the year, the IDC has a healthy pipeline of investments, with R31bn in undrawn commitments. These are largely in the mining & metals, industrial infrastructure and chemicals & textiles industries.

Of course, the proof of the pudding is in the eating. The quality of many of these businesses still needs testing before investment success can be claimed. But it does appear the IDC is dutifully playing its counter-cyclical role during the economic downturn and taking risks where other funders will not.

This is the job of the IDC, says Qhena: to invest when others are not investing, and taking risks where other funders will not. Qhena acknowledges, however, that this is growing "trickier". "Disbursements are not happening as fast as we would like them to happen. If the economy does not recover that might slow down [further.]"

While the bulk of the IDC’s capital is going towards traditional industries, the corporation has recognised the need to enable the "fourth industrial revolution" — new industries that will replace sunset sectors in future. Still, only 1% (R245m) of the R31bn in commitments is being funnelled towards new industries, such as those using 3D printing technology.

This compares with the R11.8bn committed to mining and metals and the R9.4bn going towards industrial infrastructure.

Lumkile Mondi, senior lecturer in the school of economics and business science at Wits University, argues that the IDC should be channelling more resources towards creating an economy of the 21st century.

Pursuing the creation of black industrialists is a political rather than an economic programme and will favour the politically connected, he says. By partnering with universities and institutions, such as the Council for Scientific & Industrial Research, to identify innovative ideas, the IDC could reposition SA’s economy, says Mondi, who was formerly chief economist at the IDC.

This will help to move it away from the mining sector and services, in a highly financialised economy driven by the JSE, towards new technologies and new jobs in industries such as clean energy, life sciences and food security, he says.

Mondi submits that the barriers to entry are also much lower in these industries, since black and white South Africans compete there on a more equal footing. "Rather than creating a second industrial revolution for a small black elite, the IDC should be targeting the fourth industrial revolution. The agenda for black entrepreneurs should be in the global space."